FBI probes $1 million bid-rigging at UTSA

Updated 6:00 pm, Thursday, February 21, 2013

The FBI is investigating contractors and a former project manager at the University of Texas at San Antonio over allegations they committed more than $1 million in fraud through a bid-rigging scheme, recently unsealed court records show.

The probe began with an anonymous tip last year to a UTSA fraud hotline in which the caller said a contractor was doing work at the home of then-UTSA project manager James Council, and that the jobs were being invoiced to the university, court records said.

Council, 41, had worked for UTSA since 1997 and was promoted to project manager in September 2009, the documents said.

In an interview with the San Antonio Express-News, Council said he was fired in November from his $60,000-plus-a-year job amid the probe, which the court documents show centers on him and four other people: primary contractor Magin “Buddy” Villalon, 60; his ex-wife, Sarah Ann Luna, 56; and father-and-son contractors Fred Gonzalez and David A. Gonzalez.

No one has been charged, but the investigation is ongoing and prosecutors are expected to take the case to a grand jury later this year, records show.

In an interview, Council admitted to a scheme to rig and inflate bids for general contracting work at UTSA that allowed him to receive some kickbacks in exchange for directing the jobs to the contractors.

However, he said no work was done to his home on the university's dime.

He blamed the contractors for devising the scheme after approaching him during a messy custody battle and other personal family issues. With no money for lawyers for the custody fight, he said the ploy was to skim from UTSA by inflating bids.

“I was in a very bad place and got caught up with some bad people that offered me a way out,” Council said. “Basically, there was some cash exchanges that occurred that helped me finance the custody battle.”

He said he's guilty, but that he made no more than $10,000 from the scam and is willing to make restitution.

“They gave me just enough to keep needing them,” Council said of the contractors, who he says ended up duping him.

Attempts to reach Villalon and the others were unsuccessful. A reporter left a detailed message seeking comment at Villalon's Northwest Side home. Calls to phones listed for the others went unanswered or are disconnected.

Special agent Erik Vasys, the FBI's spokesman in San Antonio, said the bureau does not comment on pending investigations. And UTSA limited its comments, citing the ongoing investigation and personnel matters.

“UTSA is the victim of the crime here and is cooperating fully with federal and state authorities,” UTSA spokesman Joe Izbrand said. “UTSA will not be doing business with these contractors again.”

According to a copy of the supporting affidavit obtained by the Express-News, FBI agents obtained a federal warrant in November to search Council's computer and workspace at UTSA.

The affidavit said agents retrieved e-mails showing Council inflated bids sent to UTSA's purchasing department.

The agents believed it was to help pay for work that the vendors were doing at his own home, but Council told a reporter that some work on cabinets and a deck area was done as a barter — in exchange for a vehicle he had.

The affidavit said agents found Villalon is listed as the project manager for PSE, and that Fred Gonzalez is listed as the owner. It has listed addresses in San Antonio that do not house such a business, according to recent visits there by a reporter.

The affidavit also said the FBI recovered evidence indicating Vista Contracting, which lists Luna as the owner, and GNZ, which lists David Gonzalez as owner, are shell companies controlled by Villalon.

Agents also reviewed bank records showing Villalon set up an account in August 2011 that functioned “only as a pass-through account to launder the proceeds from the bidding scheme at UTSA.”

Acting on the April 2012 tip, UTSA audited Council's relationship with Villalon. Officials referred the matter to police, the affidavit said.

The affidavit said the audit found Council worked under the radar by taking advantage of loopholes in contracting rules at UTSA, where only projects greater than $25,000 require a formal, sealed bid process.

The affidavit said Council most often used the informal bid process of “Tier 1” projects (work is less than $5,000, and a bid is obtained from only one vendor) and “Tier 2” jobs (cost is $5,000 to $25,000 and bids from three vendors are obtained so the lowest can be chosen).

“The audit ... revealed a scheme to defraud UTSA of over $1 million by rigging the bid system,” the affidavit said. “The scheme involves Council obtaining bids for Tier 1 and Tier 2 projects. Council routinely used the same three bidding contractors in Tier 2 projects: PSE, GNZ and Vista Contracting.”

The UTSA audit found e-mail traffic and blank project proposals for both PSE and GNZ that had been sent to Council by Villalon or some of his alleged accomplices.

E-mails also indicate the actual costs of the bids being submitted were being inflated by Council before he sent them to the UTSA purchasing department, the affidavit said.

“On Tier 1 projects, Council would routinely inflate the bid submitted to purchasing for payment sometimes (by) as much as five times the actual cost submitted by the vendor,” the affidavit said.

While Council admits the inflated bids, he said the contractors were still less expensive: “They did a lot of good work that was much cheaper than anyone else,” sometimes by as much to $60,000 less.

He acknowledged the fraud was part of a series of bad decisions he made, and added that he did not have a support group for his personal issues, instead turning to the contractors who seemed willing to listen.

“I had nowhere to go,” Council said. “I felt that if I didn't do this, I was abandoning my kids. It makes me feel like an ass that I did these horrible things in the name of my kids.”

He said he's not going to hire a lawyer, but instead save up some money to use for restitution, when the time comes.

“I wish I could undo everything,” Council said. “I did wrong and I'm going to have to pay for it.”

Staff Writer Jennifer Lloyd contributed to this report.

gcontreras@express-news.net

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